Council Cuts Funding for 2nd Phase of Metro Rail

After a stormy debate over escalating costs on the Metro Rail project, the Los Angeles City Council on Tuesday agreed to put up $96 million to cover its share of the construction on the project’s next phase, but committed only half the amount sought for cost overruns.

The Los Angeles County Transportation Commission, which oversees funding for the project, had asked the city to cover half of any cost overruns, up to $181 million. But at the urging of Councilman Nate Holden, the council voted 9 to 3 to commit only $90.5 million.

“The (Transportation Commission) . . . slipped one in on us,” Holden charged, contending that the commission set the cost overrun contingency fund much higher than was required by the federal government, which is paying for half the project.

‘Deep Pockets’

“They are saying to the contractors, ‘Come on in, we got deep pockets’; I am saying, ‘No.’ . . . It is incumbent on the city to take whatever steps are necessary to protect its interests,” the councilman said.

Holden also persuaded the council, on another 9-3 vote, to seek changes in the city’s current funding agreement with the commission to allow the city’s attorneys and transportation experts to participate in cost-reduction efforts.

The effect of the council’s action Tuesday was not immediately clear. Before construction can start on the second phase of the $3.7-billion subway project, the city and the Transportation Commission must reach agreement.

“The $90.5-million commitment is a problem . . . but we are encouraged by the solid 9-3 vote for going ahead with the Metro Rail,” said Jim Sims, the commission’s acting executive director.

He said the commission and the city will have to have further negotiations on the the cost overrun commitment. As for giving the city a more active role in the way the money is being spent, “that’s open to negotiation too,” he said.

The council’s voting to give the Transportation Commission a lesser commitment came after recent disclosures of big problems experienced by the Southern California Rapid Transit District, the agency building the 17.3-mile subway.

The $1.2-billion first phase of Metro Rail is estimated at $135 million over budget and two years behind schedule, according to an audit done for the commission. The audit, released last week, was also critical of the RTD’s management of the construction contracts, saying the district’s staff was top heavy and its procedures cumbersome.

In response, the district released its own audit, publicly acknowledging for the first time that the project’s first phase was over budget--although by a smaller amount, $104 million, and as much as two years behind schedule. The district’s top officials contended that such cost increases and delays are normal for a project of this size. They said the RTD staff is working hard to insure that only legitimate increases are paid to contractors.

Holden, chairman of the council’s Transportation Committee, challenged the findings of both audits and questioned whether either the transit district or the commission had enough control over the project. After holding hearings on the issues, Holden took the controversy to the full council.

During Tuesday’s hearing on Metro Rail costs, several council members expressed the fear that cost overruns on the first 4.4 miles of tunnel work are draining off so much money that the job will run out of money before reaching the San Fernando Valley. A city staff report warned that the escalating costs jeopardize the last miles of the project.

Metro Rail funding is complex, with money coming from the federal, state and local governments. Congress has authorized funding for only half of the second phase. It is this $1.4 billion, Phase II-A funding agreement that is being negotiated with the city.

The final section of the project, called Phase II-B, still must be authorized by Congress and a separate funding agreement must be negotiated between the commission and the city in the early 1990s. The federal government will not pay for any cost overruns.

If the escalating project costs are not contained, Councilman Joel Wachs said, “we don’t have a snowball’s chance in hell that this will ever get to the San Fernando Valley.” Unless the fiscal hemorrhaging is stopped, he said, he will no longer support the Metro Rail project.

The dire predictions of a shortened subway are a worst-case scenario that assumes that Congress will back away from its commitment to Metro Rail after having committed $2.6 billion to the first phase and the first half of the second phase, RTD General Manager Alan Pegg said.

“It is somewhat irresponsible” for the city to say that Congress will not include the final Metro Rail funding in 1991, Pegg said. The transit official also took exception to the council’s contention that more scrutiny was needed to curtail costs, saying, “Metro Rail is the best disclosed project in existence.”